REBUTTAL TO BEST WORLD'S CLARIFICATION ANNOUNCEMENT - Bonitas Research
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COMPANY: Best World Intl. Ltd │ BB: BEST / SGX: CGN
INDUSTRY: Skin Care and Health Supplements
Price Market Cap Average Daily Value Traded (30 day)
(as of 9May2019 Lunch Break )
S$ 1.59 S$ 1 billion S$ 10+ million
REBUTTAL TO BEST WORLD’S CLARIFICATION
ANNOUNCEMENT
On April 24, 2018 we published our investment opinion (the “Report”) on Best World International Ltd. (BB: BEST __
SGX: CGN) (“Best World” or the “Company”). On May 8, 2019, two weeks later, Best World issued a clarification
announcement (the “Response”).
Best World’s response is reminiscent of many companies we have identified in the past. They have chosen to hide behind
their auditors for its reported financial performance and their lawyers for convoluted and misleading legal descriptions of
its Chinese operations. Despite its length, Best World's Response fails to address the key issues raised in our Report. We
think its Response is littered with lies in an attempt to discredit our findings, which has only strengthened our belief that the
Dora’s will not voluntarily disclose the truth.
In our Response, we present additional evidence which corroborates our findings that Best World fabricated its 2017 reported
sales to Changsha Best. Considering the abundance of factual, independently verifiable evidence including testimonials
from Member Reps about Best World’s Direct-Selling China sales model, the Company blatantly lied in its response that it
does not conduct direct selling in China.
The Company even surmises that the sudden influx of reviews on DR’s Secret online sales channels immediately after the
Singapore Business Times article was because of “simply raised awareness” of its product and its brand to consumers. Best
World expects investors to believe that consumers became more aware of its DR’s Secret skin care products because the
Singapore Business Times article was critical of its China operations. How does that make any sense?
The Company continues to claim that its growth in China sales were “driven by underlying demand of the skin care
products.” Another lie. How can any investor trust Best World after being told so many blatant lies?
We stand by our opinion and the evidence presented in our Report that Best World is a fraud, that it fabricated its reported
2017 sales to Changsha Best, and that it currently operates a direct selling sales model in China.
We have not been contacted by anyone yet, but in the event that we are mentioned in a defamation claim, we are ready with
an exhaustive list of of internal discovery document requests for Best World which we expect will only corroborate publicly
available findings. We encourage investors and regulators to replicate and confirm our findings to expedite the truth-
gathering process.
We remain short Best World’s stock.
THIS RESEARCH REPORT EXPRESSES SOLELY OUR OPINIONS. Use Bonitas Research LLC’s research opinions at your own risk. You should do your
own research and due diligence before making any investment decisions, including with respect to the securities discussed herein. We have a short interest
in Best World’s stock and stand to realize significant gains in the event that the price of such instrument declines. Because this document has been prepared
without consideration of any specific clients’ investment objectives, financial situation or needs, no information in this report should be construed as
recommending or suggesting an investment strategy. Investors should seek their own financial, legal and tax advice in respect of any decision regarding any
securities discussed herein. This report and its contents are not intended to be and do not constitute or contain any financial product advice as defined in the
Australian Corporations Act 2001 (Cth). Please refer to our full disclaimer located on the last page of this report.
Best World │ BB: BEST / SGX: CGN www.bonitasresearch.com
2017 SALES FABRICATION
Best World’s response confirmed that we correctly identified its “one major customer” as Changsha Best.
While Best World’s response focused on COGS, the actual number we used to calculate the amount of Best World’s
fabricated sales was the total import value of goods from PRC Import Records.
For PRC companies with import licenses, Credit Reports disclose annual total import values. PRC Credit Reports for
Changsha Best disclosed its 2017 total value of imported goods was S$ 80.5 million, (S$ 25.3 million) less than what
Best World reported as its 2017 sales to Changsha Best.
2017 Credit Report for Changsha Best
S$ 80.5 million
S$ 80.5 million
Source: Changsha Best Credit Reports
Panjiva is an independent third party service provider of aggregated government published information that is made
public by most countries, including China. Panjiva data disclosed Changsha Best’s 2017 total value of goods imported
as S$ 80.5 million for 2017, corroborating what was disclosed in its PRC Credit Reports.
2
Best World │ BB: BEST / SGX: CGN www.bonitasresearch.com
2017 Panjiva Data for Changsha Best
S$ 80.5 million
S$ 80.5 million
Source: Excerpt of Panjiva Data
https://panjiva.com/
3
Best World │ BB: BEST / SGX: CGN www.bonitasresearch.com
No matter how Best World tries to deflect attention from its fabricated 2017 sales, the facts show that Changsha Best’s
2017 total value of goods imported was S$ 80.5 million.
Prior to its 2Q’2018 transition from its Export Model to Franchise Model, Best World disclosed its 2018 export sales
were S$ 11 million. If Changsha Best continued to be Best World’s “one major customer” for the final months of
transition away from Best World’s Export Model in 2018, we would expect to see total value of goods imported by
Changsha Best to be S$ 11 million.
S$ 11 million (US$ 8.1 million) is exactly what Panjiva disclosed as Changsha Best’s 2018 total value of goods
imported, suggesting that timing from 2017 to 2018 is not the reason for the diecrepancy between Best World’s
reported sales versus what Changsha Best imported into China from Best World.
2018 Panjiva Data for Changsha Best
S$ 11 million
S$ 11 million
Source: Panjiva
https://panjiva.com/
Fabricated sales are not the only thing that Best World is lying about to investors.
4
Best World │ BB: BEST / SGX: CGN www.bonitasresearch.com
ARRANGED VISISTS TO CHANGSHA TIANXIN LIFESTYLE CENTER
In our report we highlighted that we found the Changsha Tianxin Lifestyle Center (长沙天心区生活馆) closed from
March 20, 2019 to March 22, 2019 (three consecutive business days) despite its normal operating hours listed on Best
World’s website.
In its Response, Best World stated that PwC was at the Changsha Tianxin Lifestyle Center on March 20, 2019.
The first image below was taken by our investigator in the afternoon on March 20, 2019. The lights were on, but no
one answered the door. It is entirely possible someone left the lights on from a PwC arranged visit earlier that day.
Source: Changsha Tianxin BWL Lifestyle Center – Afternoon of March 20, 2019
On March 21 and March 22, we went back to the Changsha Tianxin location and found the lights were out and no one
answered the door.
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Best World │ BB: BEST / SGX: CGN www.bonitasresearch.com
Source: Changsha Tianxin BWL Lifestyle Center – March 21, 2019
This is alarming. When PwC is there, the lights are on and the shop is open. When PwC is not there, the lights are
off and no one is home. What kind of an arranged show is Best World presenting to PwC on its scheduled visits? Is
PwC making any non-arranged visits to any locations? What good is an independent investigation if the investigator
is only seeing what the Company wants them to see?
6
Best World │ BB: BEST / SGX: CGN www.bonitasresearch.com
SALES TO MEMBER REPS, NOT CONSUMERS
Best World’s response clearly stated that it is not operating a direct selling model in China.
Source: Company Response
This is a lie. We have facts. A China Member Rep sent us the following graphic to describe pricing and sales
incentive structure for Member Reps in Mainland China.
Source: China Member Rep
Correspondence with Member Reps confirmed that bonuses paid to senior Member Reps for signing up a new Member
Rep (“BM-Level Member Rep”) equaled 25% of the BM-Level Member Rep’s initial purchase amount. Below is a
written note we received from a Fujian-based Member Rep describing the initial fee and future compensation from
having their own Member Rep network.
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Best World │ BB: BEST / SGX: CGN www.bonitasresearch.com
To become a VIP customer and enjoy VIP discount
prices, one must purchase products worth 2,000
internal credits, equivalent to approximately
RMB4,000, or a products set, and submit her ID to
the company’s system; to become a Member Rep,
one must purchase products worth of 10,000
internal credits, equivalent to over RMB20,000.
After becoming a Member Rep, one will procure
the products at the same price as VIP customers, but
Member Reps can accumulate credits to receive
cash rebates worth 15% to 25% of her procurement
amount (under 2,000 credits: 15%; 2,000-4,999
credits: 20%; above 5,000 credits: 25%). If a
Member Rep has her own agents (subordinate
Member Reps), she receives commission on the
sales of seven generations of subordinate Member
Reps and an additional system bonus of 3%, etc.,
level by level.
Source: China Member Rep
While every scam is unique, we could describe Best World’s China operations using multiple sales model synonymns:
direct selling, multi-level marketing, pyramid, export agent, franchisee… Below is a list of common characteristics
we found while conducting our fieldwork.
1. New Member Reps make a high minimum threshold pre-paid purchase to become a BM-Level Member Rep.
2. The entry fee to become a BM-Level Member Rep is similar in Mainland China and Taiwan. In Taiwan, the
initial entry level purchase for a BM-Level Member Rep was NT120,000 (equivalent to RMB26,000). In
Mainland China, the typical entry purchase was RMB20,000+.
3. There is a referral bonus scheme which allows Member Reps to get paid a portion of the fees paid from new
Member Rep sign-ups.
4. Member Reps increase status levels if successful at recruiting new Member Reps. Higher levels equate to
additional incentive fees.
5. Higher Level Member Reps are encouraged to build out Member rep networks with commission fees ranging
from 2% to 6% of sales from seven generations of Member Reps.
While Best World disclosed to investors that its Taiwan business is different than its China business, we found many
similarities between Best World’s Taiwan and China operations. Below are images taken from a Taiwan Member
Rep’s online blog used to explain Best World’s Taiwan Member Rep incentive payout structure to new member
recruits.
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Best World │ BB: BEST / SGX: CGN www.bonitasresearch.com
Source: https://ken21333.weebly.com/21046242302017132057
In addition, as pointed out by other market participants, Best World appears to be operating illegally under the guise
of BWL China’s direct selling license awarded in 2016 for its wholesale health and supplements business limited only
to Hangzhou City.
We hope that our Report helped to alert PRC regulators that Best World appears to be operating direct selling sales
practices in China without a license, a topic of multiple ongoing current investigations of other various sales model
schemes, including “Quanjian Group (权健集团)”1, “Infinitus Group (无极限集团)”2 and “Hualin Group (华林集
团)”.3
1 http://tech.qq.com/a/20190108/000761.htm
2 https://finance.sina.com.cn/chanjing/gsnews/2019-01-19/doc-ihqfskcn8620479.shtml
3 http://henan.sina.com.cn/news/z/2019-01-14/detail-ihqhqcis5907721.shtml
9Best World │ BB: BEST / SGX: CGN www.bonitasresearch.com
FAKE CUSTOMER ACTIVITY AT ONLINE SALES CHANNELS
In our Report we presented evidence which suggested that since the February 18, 2019 Singapore Business Times
article (the “BT Article”), online vendors on both JD.com and Taobao.com appear to have artificially inflated their
online review counts and transaction history to give a false appearance of online sales activity.
In its Response, Best World surmised that this may be a results of “simply raised awareness” by consumers.
Source: Company Response
What?!? You expect us to believe that online consumer demand increased for Dr’s Secret’s skin care products because
the BT Article suggested opacity within your Chinese business model? How does the scale and size of your operations
being questioned increase consumer usage of your product?
We believe it is no random coincidence that new online stores with fake reviews appeared as top-selling vendors on
JD.com and Taobao.com within days after the BT Article was published. To us, this evidence suggests that Best
World instructed its Member Reps to post fake reviews and generate fake transactions on Member Rep online stores
in order to artificially inflate DR’s Secret online usage and popularity.
We refer interested readers to review the evidence we presented in our Report, and encourage everyone reading our
Rebuttal to do their own independent desktop research and independently verify our finding.
We are not surprised by the lack of end user consumer demand for DR’s Secret skin care products in China. An
analysis of comparable Chinese consumer options revealed that DR’s Secret is the second-highest-priced branded skin
care products, second only to the extremely successful and iconic CHANEL. 4 We calculate that on average, DR’s
Secret skin care products are priced more than 100% higher than widely-available competing consumer skin care
products.
BEST WORLD Skin Care vs. Popular Competing Brands
POPULAR COMPETING BRANDS Volume Price Unit Price
ml/g RMB RMB/ml
Estee Lauder 96 549 11.1
L'Oreal 82 260 5.1
Fancl 24 264 14.3
Clarins 97 499 8.5
Chanel 66 1683 36.6
L'Occitane 80 549 13.8
Shishedo 88 739 12.3
Kose 88 764 12.9
COMPETING BRAND AVG 77 663 14
BEST WORLD 48 570 19.1
as % of Competing Brand Avg 61.9% 85.9% 133.6%
Source: Company Websites
Competitor Product offerings varied between 7 and 12 product SKUs
Prices as of March 1, 2019
4 https://www.businessoffashion.com/articles/news-analysis/louis-vuitton-chanel-are-the-most-valuable-brands-but-gucci-is-
gaining
10Best World │ BB: BEST / SGX: CGN www.bonitasresearch.com
DISCLAIMER
We are short sellers. We are biased. So are long investors. So is Best World. So are the banks that raised money for Best World. If you
are invested (either long or short) in Best World, so are you. Just because we are biased does not mean that we are wrong. We, like
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contained herein are the opinion of Bonitas Research LLC (“Bonitas”) and are not statements of fact. Our opinions are held in good faith,
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